Expect big deals in 2013, says BDO
CHICAGO — If the folks at BDO are to be believed, the OfficeMax/Office Depot merger will be just one of many potential deals forged in 2013.
According to a new survey from the advisory firm, nearly all retail CFOs (94%) expect merger and acquisition (M&A) activity will increase or remain steady in 2013. CFOs’ bullish forecasts follow $324.6 billion in global retail and consumer M&A activity in 2012, which was up 33% over 2011 and the busiest year since 2007, according to Dealogic. A majority of CFOs (68%) expect the U.S. markets to see a majority of deal volume, followed by the Asia-Pacific market (20%) and Latin America market (7%).
Retail CFOs also forecast robust IPO activity in 2013. Following 13 U.S. retail public offerings in 2012 (according to Intrepid Investment Bankers), a vast majority of CFOs (83%) expect to see more or about the same number of retail IPOs this year. When asked what the biggest driver of a company’s ability to go public in 2013 is, CFOs point to the strength of the U.S. economy and stock market (42%), as well as strength of brand (24%) as top factors.
“In terms of overall M&A transactions, we’ve seen the fastest start to the year since 2005, and retail looks to be a bright spot for deal-making this year,” says Stephen Wyss, partner in the Retail and Consumer Products practice at BDO USA, LLP. “Steadier markets, renewed interest in international growth and the desire for omni-channel capabilities are fueling the investment rebound in retail and consumer businesses.”
These findings are from the seventh-annual BDO Retail Compass Survey of CFOs, which examined the opinions of 100 chief financial officers at leading retailers located throughout the country. The retailers in the study were among the largest in the country. The survey was conducted in January and February of 2013.
Macy’s bests guidance in Q4
CINCINNATI — Macy’s reported fourth-quarter sales and earnings growth that exceeded company expectations, prompting it to issue new guidance for 2013.
"2012 was another great year in our company’s evolving story of growth. The numbers reflect our success in pursuing the right strategies, and executing them with conviction in every part of the business with a talented team we consider to be the best in retailing," said Terry Lundgren, chairman, president and CEO of Macy’s, Inc. "We again added more than $1 billion in top-line sales growth in 2012. Comp sales rose by 3.7% for the year, on top of increases of 5.3% in 2011 and 4.6% in 2010. Earnings per share grew by double-digits for the fourth consecutive year. Operating cash flow continued to be strong, and we used excess cash to repurchase shares and double the dividend.
"The best news of all is that we continue to see significant upside opportunity ahead in those strategies that have worked so well since we reorganized the company in 2009. Going into 2013, our team is moving ahead with new plans and actions to sharpen our approach to localized merchandise assortments and marketing, which we continue to believe is Macy’s sustainable competitive advantage. We are accelerating progress in omnichannel strategies at Macy’s and Bloomingdale’s to bring together our efforts in stores, online and mobile in a manner that satisfies emerging shopping patterns and capitalizes on the strength of our inventory regardless of where the customer demand occurs. And we are engaging shoppers in a manner that engenders loyalty and builds our business with each individual customer," he said.
Earnings were $1.83 per diluted share for the 14-week fourth quarter of 2012. Diluted earnings per share were $2.05 in the fourth quarter of 2012, excluding pre-tax expenses of $133 million ($85 million after tax or 21 cents per share) associated with the early retirement of approximately $700 million of outstanding debt, and approximately $5 million in pre-tax expenses ($3 million after tax or 1 cent per share) related primarily to the store closings announced on Jan. 3.
In the 13-week fourth quarter of 2011, earnings were $1.74 per diluted share. Diluted earnings per share were $1.70 in the fourth quarter of 2011, excluding pre-tax gains of $54 million ($34 million after tax or 8 cents per share) from the sale of store leases related to the 2006 divestiture of Lord & Taylor, and approximately $29 million in pre-tax expenses ($18 million after tax or 4 cents per share) related primarily to store closings.
For the 53 weeks of fiscal 2012, Macy’s Inc. earned $3.24 per diluted share. Earnings per diluted share were $3.46 for fiscal 2012, excluding pre-tax expenses of $137 million ($87 million after tax or 21 cents per share) associated with the early retirement of outstanding debt, and $5 million in pre-tax expenses ($3 million after tax or 1 cent per share) related primarily to store closings. The $3.46 per share compares with management’s initial guidance provided at the beginning of the year for earnings per diluted share, excluding such items, to be in the range of $3.25 to $3.30 per diluted share in fiscal 2012.
For the 52 weeks of fiscal 2011, Macy’s Inc. earned $2.92 per diluted share. Earnings per diluted share were $2.88 for fiscal 2011, excluding pre-tax gains of approximately $54 million ($34 million after tax or 8 cents per share) from the sale of store leases related to the 2006 divestiture of Lord & Taylor, and approximately $29 million in pre-tax expenses ($18 million after tax or 4 cents per share) related primarily to store closings.
Sales for the fourth quarter totaled $9.35 billion, an increase of 7.2%, compared with sales of $8.724 billion in the 13-week fourth quarter last year. On a same-store basis, Macy’s Inc.’s fourth quarter sales were up 3.9%.
The company’s total sales for the 53 weeks of fiscal 2012 totaled $27.7 billion, up 4.9% from total sales of $26.405 billion in the 52 weeks of fiscal 2011. Same-store sales were up 3.7%.
The company’s online sales (macys.com and bloomingdales.com combined) were up an impressive 47.7% in the fourth quarter and 41% for fiscal 2012 compared with the same periods in 2011. Online sales positively affected the company’s same-store sales by 3.3 percentage points in the fourth quarter and 2.2 percentage points in fiscal 2012 as a whole.
In fiscal 2012, the company opened a total of seven stores and closed eight stores.
For fiscal 2013, the companyis assuming same-store sales growth of approximately 3.5% in fiscal 2013. Guidance for earnings per diluted share in fiscal 2013 is $3.90 to $3.95. Capital expenditures for the year are expected to be approximately $925 million.
Tax delay dents AutoZone sales
A 1.8% decline in second quarter same store sales at AutoZone was attributed to a two week tax return processing delay by the Internal Revenue Service.
The delay kept tax refunds out of the hand of AutoZone customers inclined to perform maintenance on their vehicles during the retailer’s second quarter ended February 9. Last week, Walmart also cited the tax processing delay as a source of sale weakness when it reported a 1% comp increase that was at the low end of its forecast range for a 1% to 3% increase.
"While we are pleased to report our twenty-sixth consecutive quarter of double digit earnings per share growth, we were not pleased with our same store sales results for the quarter," said Bill Rhodes, AutoZone chairman, president and CEO. "Historically, we have seen our sales increase significantly during the final two weeks of our second quarter. However, this year our total domestic auto parts same store sales for the last two weeks declined by 8%. Our belief is the approximate two week delay in processing of income tax returns this year was the key contributor to this decline in sales."
Rhodes said the company expects sales during the remainder of the quarter will return to a more normalized level as last quarter’s sales were on plan except for the final two weeks.
"As we enter our key spring and summer selling season, we are optimistic about our future. We believe we have the right initiatives in place to meet and exceed our customer’s expectations. We remain committed to our disciplined approach of growing operating earnings while efficiently utilizing our capital," Rhodes said.
Sales for the second quarter increased 2.8% to $1.9 billion, net income increased 5.6% to $176 million and earnings per share increased 15.1% to $4.78. Gross margins expanded to 51.9% from 51.3% as the company reduce product acquisition costs.
The company opened 32 new stores in the U.S. and nine new locations in Mexico during the quarter to ended the period with a total of 5,070 stores